How to Achieve Durable Development Despite Hard Times

Resilient and inclusive growth remains key to development of low-income countries

Infrastructure gaps must be closed, while maintaining debt sustainability

Countries should tap both domestic and external resources to sustain growth

This was the main lesson of the conference “Sustainable Economic Development in a Challenging Global Environment” on low-income developing countries organized as part of the IMF-World Bank Spring Meetings in Washington, D.C. on April 14.

“The global environment is clearly causing some real difficulties in low-income and developing countries. This is partly due to lower commodity prices, which have been declining for more than a year and a half. For countries which are reliant on the extraction of resources, this is a major problem,” said IMF Managing Director Christine Lagarde in her opening remarks, adding that low commodity prices are here to stay. She also noted the economic slowdown of China—a significant client of and direct investor in many low-income and developing countries—created further difficulties.

A weaker external environment and tighter financing conditions are exacerbated by longer-term mega trends in climate change, demographic changes and technology, IMF Deputy Managing Director Min Zhu remarked.

DMD Min Zhu (photo: IMF)

Resilient growth remains the key to the sustainable development of low-income countries, according to Harvard University Professor Lant Pritchett. Such growth is still lacking in many developing countries: severe growth collapse episodes hit low-income and developing countries frequently and with devastating effect. Cumulative losses in growth decelerations in the 90 recent episodes were larger than 20 percent of GDP, Pritchett said. “This means 90 Greek tragedies,” he said in reference to a 22 percent drop of Greek output between 2008 and 2012.

Moral imperative of equality

Setting the stage for a debate about how structural or macroeconomic policies could contribute to growth, Harvard University Professor Larry Summers noted that resilient growth must be maintained through rainy day buffers, inclusiveness, public investment, and structural reforms in low-income countries the same way as in advanced economies.

MD Christine Lagarde and Professor Larry Summers (photo: IMF)

“Almost all economic policy errors take the shape of doing today what you wish you had done yesterday,” Summers noted. “Things are likely to get worse in the next couple of years and the...